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Economy in Brief

Philadelphia Fed Manufacturing Index Declines; Pricing Pressure Holds Steady
by Tom Moeller  December 20, 2018

The Philadelphia Federal Reserve reported that its General Factory Sector Business Conditions Index declined to 9.4 during December from 12.9 in November. The Action Economics Forecast Survey median estimate was 15.7. During all of 2018, the index level eased to 21.1 from 27.4 in 2017. These figures are diffusion indexes where readings above zero indicate expansion. The percentage of firms reporting an improvement in business activity fell to 26.4%, down from the high of 48.2% in May of last year. The number reporting a weakening environment also fell to 17.0%.

Haver Analytics constructs an ISM-Adjusted General Business Conditions Index and it eased to 54.6 in December from 55.8 in November. This measure hit a cycle high of 61.9 in March. During the last ten years, there has been a 65% correlation between the quarterly ISM-adjusted Philadelphia Fed Index and quarterly real GDP growth.

Working lower was the shipments index to the lowest point in just over two years. and the inventories series reversed its November increase. The new orders index actually reversed most of the deterioration in November. Unfilled orders also rose while the rise in the delivery times index indicated slightly slower product delivery speeds.

The employment index held fairly steady near the level of this past June. During the last ten years there has been a 79% correlation between the employment index and the month-to-month change in factory sector payrolls. Twenty-four percent of respondents reported increased hiring, down from 30%, while a lessened six percent indicated a decrease. The average workweek reading fell sharply to its lowest level since late-2016. The index of future employment improved this month, but remained well below its May high.

The index of prices paid was little changed, but the prices received index improved to the highest level in four months. Forty-two percent of firms reported higher prices paid, down from 63.1% in August while a higher four percent paid less, though this was increased from July's reading of 0%. The future prices paid index was steady m/m and remained down from the April high.

The index measuring expectations of future business conditions improved m/m, but remained well below its high early last year.

The survey panel consists of 150 manufacturing companies in the third Federal Reserve District (which consists of southeastern PA, southern NJ and Delaware). The diffusion indexes represent the percentage of respondents indicating an increase minus the percentage indicating a decrease in activity. The ISM-adjusted figure, calculated by Haver Analytics, is the average of five diffusion indexes: new orders, shipments, employment, delivery times and inventories with equal weights (20% each). Each ISM-adjusted index is the sum of the percent responding "higher" and one-half of the percent responding "same."

The figures from the Philadelphia Federal Reserve dating back to 1968 can be found in Haver's SURVEYS database. The expectation from the Action Economics Forecast Survey is available in AS1REPNA.

Philadelphia Fed - Manufacturing Business Outlook Survey (%, SA) Dec Nov Oct Dec'17 2018 2017 2016
General Factory Sector Business Conditions 9.4 12.9 22.2 27.9 21.1 27.4 4.9
ISM-Adjusted Business Conditions 54.6 55.8 55.7 57.5 57.7 57.2 48.3
  New Orders 14.5 9.1 19.3 28.2 21.1 25.4 4.9
  Shipments 10.0 21.6 24.5 23.9 22.8 26.8 6.9
  Unfilled Orders 9.7 -4.8 -2.3 12.8 7.1 11.9 -5.6
  Delivery Time 6.7 5.0 0.2 11.0 9.5 10.6 -4.6
  Inventories -0.2 9.5 -0.8 -1.1 7.3 2.8 -9.6
  Number of Employees 18.3 16.3 19.5 19.7 21.5 16.2 -5.6
  Average Workweek 0.5 6.3 20.8 12.6 15.8 14.9 -5.4
  Prices Paid 38.0 39.3 38.2 27.8 46.2 30.4 13.5
Expectations - General Business Conditions; Six Months Ahead 31.7 27.2 33.8 52.7 36.9 47.1 33.7
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